Ilhan Omar proposed this to cancel all $1.7 trillion of student loans.
Here’s what you need to know — what it means for you.
The latest student loan debt statistics show that 45 million borrowers collectively owe $1.7 trillion of student loans. There have been countless proposals to cancel student loan debt, which include, among others:
Student loan cancellation: Wall Street tax
In the wake of the GameStop GME stock rally, Rep. Omar (D-MA) tweeted another proposal to cancel student loan debt: a Wall Street transaction tax.
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Omar says that Congress should levy a 0.1% tax on every “Wall Street trade,.” Although Omar doesn’t define which trades would be included, Omar writes that such a transaction tax would reduce high frequency trading, a “practice which drains profits from retail investors and benefits only the very rich.” According to Omar, a financial transaction tax would raise approximately $1 billion, which could be used to “cancel all student loan debt and make college free.” Presumably, if the financial transaction tax raises $1 billion, Congress would need to supplement the delta between $1 trillion and the remaining cost of total student loan cancellation and tuition-free college (which collectively also would exceed at least another trillion dollars).
Bernie Sanders: Student loan cancellation
Omar’s plan is similar to a Wall Street financial transaction tax that Sanders endorsed. Sanders says that his tuition-free public college plan and his student loan forgiveness plan would cost an estimated $2.2 trillion. To pay for these plans, Sanders would institute a “Wall Street speculation tax” that will raise an estimated $2.4 trillion over the next ten years. The “speculation tax” would work like this: a 0.5% tax on stock trades, a 0.1% fee on bond trades, and a 0.005% fee on derivative trades. For example, if $100 of stock is traded, the “speculation tax” would be $0.50.
Like Sanders, Omar believes that among other benefits, student loan forgiveness would help millions of borrowers lead a better financial life and stimulate the economy. For example, student loan forgiveness can help borrowers buy a home, save for retirement, launch new businesses, start a family, reduce racial wealth disparity, and provide economic stimulus to the middle class.
Will your student loans get cancelled?
Will your student loans get cancelled? Biden has proposed to cancel student loans three ways. This means Congress could cancel student loans through one or more of these proposals. That said, it’s unlikely that Congress will institute a Wall Street financial transaction tax. First, Schumer represents New York and is unlikely to impose a tax on Wall Street, where many of his constituents work. Second, a financial transaction tax also would be borne by many individual, retail investors (not only large financial institutions). Congress may cancel student loan debt in the new stimulus package or through standalone legislation. However, don’t expect student loan cancellation, since there’s no guarantee. Make sure you are prepared and have a game plan for your student loans, if Congress doesn’t cancel student loans or limits student loan cancellation. Start with these three options, all of which have no fees: